Please ensure Javascript is enabled for purposes of website accessibility

Why Plug Power Stock Dropped 10% This Morning

By Rich Smith – Updated Sep 24, 2020 at 11:38AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

New partnership agreements may highlight a flaw in the business model.

What happened

Thursday started out looking pretty bleak for shareholders of Plug Power (PLUG -2.85%). With the stock still caught in the undertow from a retreating market, Plug shares fell nearly 10%. But then, the stock market sell-off reversed itself, and as of 10:30 a.m. EDT today, all three major indexes were in the green. And yet, despite the brighter mood in the market in general, Plug Power shares don't seem to be recovering as fast as everyone else's, and remain down a distressing 7.7%.

Red arrow goes down and green arrow goes up

Image source: Getty Images.

So what

On Wednesday, Plug Power inked a deal with Universal Hydrogen to jointly develop a hydrogen fuel-cell airplane engine capable of flying over 600 miles without refueling. Today, Plug announced a series of follow-on deals that it hopes will get its share price moving in the right direction again.

In one agreement, Plug will partner with Brookfield Renewable Partners (BEP -1.96%) to have the latter provide renewable energy "to fully energize Plug Power's planned green hydrogen production plant," permitting Plug to produce "approximately 10 tons of 100% green liquid hydrogen per day" with which to power its fuel cells.  

In a second deal, privately held Apex Clean Energy will provide energy from wind power for the same purpose. In a third deal, Plug will demonstrate use of its ProGen fuel cell engine in Class 6 and Class 8 delivery trucks for partner Linde, with the goal of fielding an entire fleet of hydrogen fuel-cell vehicles in early 2021.  

Now what

And yet, investors aren't happy. Perhaps it's because in two of the three agreements referenced above, Plug isn't actually selling anything to anybody, or promising to grow its revenue or earn a profit from such sales. Instead, it's agreeing to buy power from other companies in order to manufacture hydrogen for itself.

For a supposed leader in renewable energy, it seems strange to see Plug consuming power rather than producing it. But this is in fact the nature of the beast, and a big reason that I am skeptical of the logic underlying the hydrogen economy. In order to produce electricity by running hydrogen through fuel cells, companies must first consume electricity to produce the hydrogen.

I suppose it's good to see Plug Power putting deals in place to get hold of the energy it needs. What worries me (and what may be worrying other investors today, too) is that Plug needs to do that at all.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.